Most Reverse Mortgages Dodge Credit-Crisis Woes

I am considering taking out a reverse mortgage in the near future. Is there any connection with the mortgage problems that have been in the news? Could those problems affect my reverse mortgage in any way? I could use a reverse mortgage to pay off my mortgage balance. I have been to several sessions on reverse mortgages and understand the program. I just want to make sure that all these problems that have been arising in the banking industry will not affect me.
—Marie Bell, San Diego

If you stick with a government-backed reverse mortgage, your payments are guaranteed. And if you take your reverse mortgage as a lump-sum payment, there is no uncertainty. So-called proprietary loans typically offer more flexible terms and aren't backed by the government. But so far payments have continued during the capital crunch.

Reverse mortgages can help older homeowners with mortgage payments, home maintenance or property taxes, among other expenses. Instead of the borrower making payments to the lender, as with a regular mortgage, the lender makes a payment, or payments, to the borrower. The borrower keeps control of the house and doesn't have to pay back the loan as long as he or she lives there. When the homeowner dies or moves out, the loan is typically paid off by selling the house, and any money left over goes to the homeowner or the homeowner's estate.

Fees are typically steep -- up to 7% of the home's value. The loans are generally limited to people who are age 62 or older, and borrowing limits are capped based on where the homeowner lives. There's a good primer at reversemortgage.org.

The most common type of reverse mortgage is a Home-Equity Conversion Mortgage, or HECM, in which the Federal Housing Administration insures lenders' and borrowers' risk. Those loans, backed by federal-government insurance, are secure. But if you're considering taking out such a loan, try to wait a few weeks: A housing law enacted earlier this year raised the lending limits for the HECM product. On or about Oct. 1, the Department of Housing and Urban Development is expected to announce those limits and start using them, says Peter Bell, president of the National Reverse Mortgage Lenders Association, a trade group in Washington, D.C.

There are also proprietary reverse mortgages -- often with higher lending limits (and, at times, a minimum-age requirement of 60) -- that aren't government-backed but which get bundled and sold to investors. Much of the securitization business had been handled to date by a unit of Lehman Brothers Holdings Inc. Although Lehman's holding company filed for bankruptcy-court protection Monday, the unit that securitized reverse mortgages "isn't part of the bankruptcy filing," Mr. Bell says. "So for the moment, there's no issue."

Still, it is getting tougher to find proprietary reverse-mortgage products. A year ago, there were 15 such products. "As of last week we were down to one or two," Mr. Bell says.

By: Kelly Greene
Wall Street Journal; September 20, 2008

Fixed-Rate 30-Year Mortgages Fall Below 6% on Bailout News

Rates on 30-year fixed-rate home mortgages dropped substantially this week, falling under 6% for the first time since May in the wake of the government takeover of Fannie Mae and Freddie Mac, according to Freddie Mac's weekly rate survey.

The national average for the 30-year fixed-rate mortgage was 5.93%, down from 6.35% and 6.31% a year ago, according to Freddie Mac's weekly survey. The rate is down nearly 0.6 percentage point over the past months.

"This means that the monthly principal and interest payment on a new $200,000 loan is over $76 lower than a month ago," said Frank Nothaft, Freddie Mac chief economist, in a news release. He expects the movement to help spur home purchases and loan refinancing in coming weeks.

Fifteen-year fixed-rate mortgages averaged 5.54%, down from 5.90% and 5.97% a year ago.

Rates fell substantially earlier this week, after news of the government's bailout of Fannie Mae and Freddie Mac.

"Lower rates have occurred at an opportune time, as the July pending sales data from the National Association of Realtors were off 3.2% from June," Mr. Nothaft said. "Refinance applications are up 18% over the past three weeks through September 5th, indicating that refinance activity has already begun to pick up."

The MBA reported that mortgage applications filed are going up.

Wall Street Journal; September 12, 2008